Monday, September 18, 2006

Stamp Duty

The Progressive Democrats have proposed changing stamp duty on houses perhaps even abolishing it entirely. Sounds great and should be a real win-win scenario for the PDs.
  • Win: the PDs will get votes for the idea before the election.
  • Win: The governments main supporters, the property developers, will make a fortune after the election.

There is also a loose-loose.
  • Loose: house buyers will pay just as much as before, the property developers will just up the prices to absorb the abolished stamp duty. That's just what happened when the limits were increased in 2005.

Of course stamp duty is an unfair tax, we all know that. It punishes the buyer not the seller and in the modern property boom it has risen to a level that in no way reflects the cost of processing a transfer of ownership. But that does not mean that abolishing it is a good idea. It is purely a money making machine for the government and the Progressive Democrats now want to hand that machine over to property developers.

The government should get those property developers to build the promised affordable housing. They should tax profits on property speculation. They should introduce meaningful renters rights and long term leases to reduce the need for people to own their own houses. They should encourage the construction of high quality yet affordable high density apartments in the city center area instead of pushing the semi-detached commuter belt out further out into Carlow and Wexford. I'm not talking about new Ballymuns, but decent apartment living like you see in most modern cities around the world.

3 comments:

Cian said...

I generally agree and i feel that voters at the next election ought make it a priority although i wonder if property tax is a win win cos the boom is ending anyhow. Symbolic win but the sector will flag in the future anyhow?

timothy said...

dec -

"house buyers will pay just as much as before, the property developers will just up the prices to absorb the abolished stamp duty. That's just what happened when the limits were increased in 2005."

got the stats? if you were a developer, don't you think you'd lose business if everyone didn't up their prices with you?

or look at it this way - what if stamp duty was increased? if stamp duty was doubled, do you think prices would stay the same? no? but you think that a subsequent reversal to their previous rate would leave prices up high? there's a problem here. if you think that (for example) doubling stamp duty would lead to increased prices, then your economics allows for prices to go up, but not down, no matter what the rate the tax is set at. doesn't that seem messed up to you?

there's a thing called the free market and it clears, so I say: let's not try to punish the buyer or the seller. resentment politics has had its day anyway. freedom is on the march!

Declan said...

Timothy,
http://www.realestate.ie/news/displayitem.asp?itemnumber=94
-quote-
The lower end of the market also saw dramatic increases - with many agents feeling the raising of stamp duty exemption levels actually had an adverse effect for buyers. When Brian Cowen raised the level to €317,500, agents reported an immediate effect, with buyers bidding 3% higher than before. Many members feel the move fuelled property price increases. Towards the end of 2005, some Dublin agents - and indeed those in other cities throughout Ireland - reported instances where vendors put their home on the market for €280,000 and received first bids of €317,000. Buyers wanted to override the opposition by getting to the stamp duty level first.

- end quote -
Ok so it was the buyers who initially offered more, but fact is you go to any auction or opening day of a property sale and you will see that it is a sellers market. Scrapping stamp duty completely will result in the same thing happening again.

I dont believe prices always go up, but I am worried that the government has allowed them to rise to a level that once they start falling they are likely to suffer a serious drop. That hurts buyers who could find themselves in negative equity and stuck with a serious mortgage and a bitch of a commute.